Question

Where a taxpayer participates in a § 401(k), § 457(b) plan, or SIMPLE IRA plan, the maximum allowable salary deferral contributions to such a plan would reduce AGI, which is beneficial for both regular tax and AMT purposes.

a) True
b) False

Answer 1

It is true that contributions to plans like § 401(k) and others reduce AGI for both regular tax and AMT, providing a tax benefit now and deferring taxes until retirement.

Step-by-step explanation:

When participates in a § 401(k), § 457(b) plan, or SIMPLE IRA plan, the maximum allowable salary deferral contributions do indeed reduce Adjusted Gross Income (AGI). This is true for both regular tax and Alternative Minimum Tax (AMT) purposes. Such reductions can provide a dual tax benefit by lowering the taxable income in the year the deferrals are made, and they defer the income tax on the contributed amount until the funds are withdrawn in retirement.